Audit committee requirements

Audit committees of companies that are publicly traded in the United States are subject to rules of the Securities and Exchange Commission (SEC) and listing standards of the exchange on which the company’s securities are listed, such as the New York Stock Exchange (NYSE) or Nasdaq. These include rules and standards related to committee composition, the charter, and committee evaluations. Indirectly, audit committees may be subject to additional requirements resulting from rules and standards for independent auditors under the Public Company Accounting Oversight Board (PCAOB).


Under NYSE and Nasdaq requirements, the audit committee should consist of three or more directors who are independent as determined by the board. All members must comply with the independence and financial literacy requirements of the SEC, NYSE, and Nasdaq. Audit committees are not required to include an audit committee financial expert as defined by the SEC, but they are required to disclose why they do not have one if that is the case, which encourages audit committees to have at least one member who qualifies as a financial expert. Audit committees should review their composition periodically to confirm that members have the knowledge and experience they need to be effective in their roles.

Under NYSE standards, if an audit committee member simultaneously serves on the audit committees of more than three public companies, the board must determine that such simultaneous service would not impair the ability of the member to effectively serve on the company’s audit committee and must disclose this in the company’s proxy statement. Nasdaq does not have a similar requirement, although many Nasdaq-listed companies have similar policies to respond to investor views or other circumstances.

Independence and qualifications of members

Audit committee members must be independent directors; however, audit committee members are required to meet heightened standards of independence compared with independence standards for other board members. Given these requirements, independence of audit committee members should be continually maintained, monitored, and reviewed at least annually. Listed companies should have policies in place to allow timely identification of changing relationships or circumstances that may affect the independence of audit committee members.

Companies generally require directors to complete independence questionnaires when joining the board and each year thereafter and to notify the company of any changes that may affect independence. For audit committee members, these questionnaires should be tailored to reflect the additional independence criteria required of them. The board should review any relationships or circumstances provided in audit committee members’ responses to these questionnaires and determine whether they impair or could be perceived as impairing independence. Companies may want to involve legal counsel in assessing the independence of audit committee members and other directors.

SEC requirements

Section 10A of the Securities Exchange Act of 1934 specifies general criteria for audit committee independence.

NYSE requirements

The NYSE listing standards incorporate the SEC’s independence requirements but include additional requirements.

Nasdaq requirements

The Nasdaq listing standards also incorporate the SEC’s independence requirements but add further requirements as well.



Financial literacy of members

Audit committee members are required to have a measure of financial literacy to effectively discharge their oversight responsibilities. SEC rules and exchange listing requirements define these requirements in different ways.

SEC requirements

The SEC requires an issuer to disclose whether at least one “audit committee financial expert” serves on the audit committee, and if so, the name of the expert and whether the expert is independent of management.

NYSE requirements

The NYSE requires all audit committee members to be “financially literate” as interpreted by the company’s board, or to become financially literate within a reasonable period after being appointed to the committee.

Nasdaq requirements

Nasdaq listing standards require all audit committee members to be able to read and understand financial statements at the time of their appointment to the committee.


Diversity of members

Nasdaq requires disclosure of information about the diversity of the company’s board. Companies are required to disclose board-level diversity statistics using a standardized template and explain in cases where they do not have at least two diverse directors. Nasdaq defines diversity as those who self-identify as a female, an underrepresented minority, or LGBTQ+. The rule does not apply to audit committees specifically, but it may serve as a reminder for committees to consider diversity in their composition.

Composition: Common practices and considerations

In designating an audit committee financial expert, the board should abide by the SEC rules and applicable listing requirements and may wish to consult with legal counsel when doing so. Given the complex issues audit committees often address, proactive audit committees often choose to have more than one financial expert. Audit committees might consider using a skills matrix to identify the skills and experience important to their committee considering the growing agendas for many audit committees in areas such as risk, cyber, and environmental, social, and governance (ESG) issues. In making this determination, the board may have audit committee members complete a questionnaire to evaluate whether an individual meets the criteria.

Although financial expert status may not change over time, committee members should invest the effort needed to understand the latest developments in financial reporting and auditing standards, as well as developments affecting the company, particularly in areas the audit committee oversees, to determine whether any changes in composition are warranted. If the committee determines that it’s lacking in a particular skill or capability, the audit committee chair should discuss this issue with the nominating and governance committee, which is responsible for recruiting board members, as it considers board succession planning. Some boards have a process for reconfirming the financial literacy of their audit committee members and revisiting the financial expert designation periodically. It is also important for the board and the audit committee to consider financial literacy and expertise during succession planning.

The SEC requires proxy disclosures about the qualifications of directors and the nomination process. The disclosure includes information about the experience, qualifications, and attributes considered in the nomination process and the reasons why individuals should serve on the company’s board. Disclosures regarding individual board committee qualifications are not required, but companies may want to consider including such qualifications as a part of the overall board qualification disclosure.


The SEC, NYSE, and Nasdaq set minimum requirements for the content of the audit committee charter.

SEC requirements

SEC rules require the proxy statements of public companies to disclose whether the board has adopted a written charter for the audit committee.

NYSE requirements

The NYSE requires the audit committee charter to include oversight of several key areas.

Nasdaq requirements

Under Nasdaq standards, the committee must review the charter at least annually.


Right to engage independent counsel

The SEC, NYSE, and Nasdaq all authorize the audit committee to engage and compensate independent counsel and advisers, as required under the Sarbanes-Oxley Act. The audit committee may use the same counsel and advisers as management, but circumstances may warrant consideration of separate counsel. Lawyers are the outside advisers most often engaged by audit committees and may be engaged to advise on areas such as legal proceedings, corporate governance issues, whistleblower inquiries, fraud concerns, and SEC matters. The services may be investigative, or they may be used to identify potential process improvements.

Charter: Common practices and considerations

An annual review of the charter is recommended for all audit committees and is required for Nasdaq-listed entities. Some factors that may render updates necessary include:

  • Changes in regulatory or legal requirements, including new disclosure requirements within the purview of the committee
  • The board's delegation of new responsibilities to the committee or reassignment of responsibilities that are not required of the audit committee by law or regulation
  • Changes in the company's bylaws that affect the composition of the committee or how members are appointed
  • Identification of practices the audit committee wants to formalize and include among its responsibilities

In addition to addressing responsibilities prescribed by rules and listing standards, the charter should set forth the audit committee's recurring responsibilities as well as its responsibility for overseeing areas outside of those required by the SEC and listing standards of the exchange on which the company’s securities are listed. The charter should allow the committee to meet outside the official calendar when needed. Concurrent with the charter review, the committee can examine its meeting schedule and consider if modifications are needed to allow the audit committee sufficient time to effectively carry out all its responsibilities.

To help with planning, audit committees can consider using their charter to create a calendar outlining what might be covered during each meeting over the course of a year, although charters and calendars may not align precisely.

When updating the charter and calendar, it may be helpful to consult with legal counsel, management, the internal auditors, if any, and the independent auditor. Any recommended changes to the audit committee charter should be presented to the board for approval.

Charter: Tools and resources 

To help with planning, audit committees can consider using their charter to create a calendar outlining what might be covered during each meeting over the course of a year, although charters and calendars may not align precisely.

Sample audit committee charter

An audit committee charter can be based on those of a variety of companies and the requirements of the SEC, the NYSE, and Nasdaq.

View a sample audit committee charter

Sample calendar planning tool

The sample audit committee charter can be used with the sample calendar planning tool.

View a sample calendar planning tool

When updating the charter and calendar, it may be helpful to consult with legal counsel, management, the internal auditors, if any, and the independent auditor. Any recommended changes to the audit committee charter should be presented to the board for approval.

Evaluation and self-assessment

The NYSE listing standards require audit committees to perform an annual performance evaluation, and this responsibility must be included in the audit committee’s charter. SEC and Nasdaq listing standards do not require audit committees to assess their performance, but all audit committees should consider how performance assessments could provide information to enhance their performance and processes.

Evaluation and self-assessment: Common practices and considerations

Because there are no specific requirements for how to assess the audit committee's performance, directors have the benefit and the burden of collaborating on an appropriate process. This can be done in consultation with legal counsel, the independent auditor, or third-party facilitators. There are several considerations in shaping the assessment process.

Factors often considered when evaluating the audit committee’s effectiveness include:

  • Composition of the audit committee, including members’ independence from management, qualifications, knowledge, skills, and experience
  • The audit committee’s understanding of the business, including the risks affecting the organization
  • Fulfillment of the audit committee’s role, including processes and procedures outlined in its charter
  • The audit committee’s oversight role as it relates to financial reporting, internal controls, audit functions, ethics and compliance, and other monitoring activities.

Conducting the assessment

Select an internal or external coordinator, and establish a timeline for the process.

Formatting and documenting

The format may consist of evaluation forms, interviews, or a combination of both.

Addressing the results

The results of the assessment are only beneficial if the committee acts upon the results.



A well-crafted performance assessment benefits audit committee effectiveness in multiple ways. It can help prioritize agendas and meeting structure to focus on the most critical issues and identify topics for future agendas and continuing education sessions. It can also enable fresh considerations regarding the delivery, level of detail, and quality of materials provided by management. Importantly, the assessment brings focus to the committee’s composition relative to its current and future needs and challenges and can be a catalyst to committee refreshment, if warranted. See a sample self-assessment that audit committees can use to evaluate their performance.

Evaluation and self-assessment: Tools and resources 


Self-assessment tool

To assist in self-assessing performance, the audit committee may consider using a tool such as a questionnaire based on leading practices.

View a sample self-assessment tool

Get in touch

Managing Director, Audit Committee Program Leader

Center for Board Effectiveness

Deloitte & Touche LLP

+1 646 912 4381

National Managing Partner

Center for Board Effectiveness

Deloitte & Touche LLP

+1 313 919 5865

Managing Director, Audit & Assurance Governance


Center for Board Effectiveness

Deloitte & Touche LLP

+1 917 301 6036

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